By: Eric Gelb, CPA, Senior Managing Director and Elisha M. Brestovansky, CPA, MBA, Senior Manager

Like the weather here in Massachusetts, if you want it to change, just wait a minute. So too the predictions for the economy. Regardless of the talking head expert you follow, it’s either all doom and gloom, a nice soft landing, or something in between.

With all the gyrations on the geopolitical front, swings in fuel prices, supply chain disruptions, COVID and interest rates, change is coming. The prudent business leader will watch their own market conditions, forecasts cash positions and adjust accordingly. Planning is always better than reacting. It may be time to play a bit of defense, so you’re in a position to protect your organization from any downside and seize opportunities as they present themselves.

With all this in mind, here are 10 strategies to insulate your organization against the impact of a recession.

1. Cash rules – mind your cash flow. Key points to consider include:

• Review your business forecast and cash flow budget and make revisions, as needed.
• If business volume has slowed, eliminate extra shifts, freelancers and contract employees, to reduce labor costs.
• Prioritize expenses and obligations based on “must haves” versus “like to have.”
• Eliminate nonessential expenses or defer payment.
• Recalculate forecasted taxable income and adjust estimated tax payments, as needed.

2. Manage borrowing costs by consolidating or eliminating high-cost debt. Analyze current debt to determine if refinancing high-cost debt is feasible. Given the current environment and banks’ tighter underwriting standards, refinancing or obtaining new capital may be a challenge. However, other options may be available. Common forms of debt include:

• Unsecured and secured long-term debt
• Short-term debt (e.g., lines of credit, cash advances and credit cards with competitive rates)
• Loans from friends and family
• Personal loans and/or an equity infusion.
• Government-backed loans (e.g., SBA Loans)
• Crowdfunding
• Peer-to-peer (P2P) lending
• Convertible debt

3. Revisit investment strategies. Meet with your advisors to determine if your investment strategies need to be adjusted with the current economic outlook in mind.
4. Pursue M&A activities – if it makes sense. Merger and acquisition activities may be declining in the recent environment, but they can be a great option to add new business capabilities, skills and gain market share in opportunistic areas. In our recent article, we noted that industries that can weather a recession and maintain or increase revenue and profits (e.g., healthcare, industrial, and consumer staples) will be in high demand. So, if you’re in the market to make an acquisition, the current environment may create attractive opportunities
5. Automate processes where feasible. Automation has come a long way – especially with the advancement of artificial intelligence (AI). Business automation and Robotic Process Automation (RPA) can be utilized to streamline processes which may include:

• Onboarding processes for new employees and customers
• Marketing processes
• IT service support
• Contract generation
• Purchase orders
• Processing Invoices
• Routine and repetitive tasks and functions

6. Focus on talent. In times of uncertainty, employees may be an edge to make ends meet. Frequent layoffs and shifting additional responsibilities to employees without commensurate compensation can lead to plummeting employee morale and productivity. Be transparent with your employees as large layoffs may create an adverse environment. As appropriate, consult your attorney before taking action to comply with employment laws.

In addition, businesses may benefit from assessing employee strengths and weaknesses to realign staff according to business needs. This is especially crucial given the current talent shortage. By assessing the current talent pool, businesses can hire strategically for positions, rather than overloading the current staff. In addition, new leaders may be identified in the current pool and can be encouraged to take on more responsibility.

For example, a CEO of a newsletter publishing company created a policy where employees were given spot and special bonuses for new business and money-saving ideas. For some of the larger ideas, the CEO paid a percentage of revenue or savings. One employee suggested that they trim the size of a book by a quarter inch on all sides. The new dimensions met US Postal Service (USPS) rules and resulted in a 10% savings on shipping costs.

7. Continue marketing your business. In an economic slowdown, many businesses trim their marketing and advertising budgets to conserve cash. In fact, this is a time when businesses should re-evaluate their marketing strategies to leverage any opportunities and/or strengthen weaknesses and make the most of their marketing budget dollars. Every dollar you invest in marketing when your competitors are sidelined is likely to have greater impact. Media costs will become more competitive, so negotiate harder. Consider reviewing your external agencies for new efficiencies. Look at your tactical plan. With so much budget being directed online, consider traditional direct mail. The USPS has seen volumes in steady decline; this could be a time to test a direct mail package because your mailing may stand out today.
8. Plan for the unexpected. Plan for as many potential scenarios as possible and devise ways to mitigate those challenges. For example, if sales fall X%, we will need to cut travel or SG&A expenses by X% to make up the difference. Run cash flow forecasts under several scenarios – meeting plan, missing plan by 10%, 25%, 50%, etc. Continually look for ways to conserve and create cash.
9. Take advantage of tax planning to minimize the effects of taxation. Businesses may be able to benefit from a multitude of tax strategies, including:

• Revisit income tax projections to analyze the feasibility of reducing estimated tax payments.
• Plan for retirement contributions
• Compensation planning
• Accelerated depreciation (Section 179 or bonus depreciation)
• Special studies (e.g., Cost Segregation, Research & Development, Section 179D, etc.)
• Employee Retention Credits (ERC), if qualifications are met – See our article here
• Clean energy planning and credits
• Pass-Through Entity Tax considerations

10. Consult the experts. Meet with your trusted advisors to help make and maintain your strategies for success. And one final thought, exceptional talent is always hard to find, but now is the time to keep your eyes open for your next great hire. Let’s hope the Red Sox take that advice this offseason.

Contact Us

If you would like to know more about this topic or have questions, please contact your PKF O’Connor Davies client engagement partner or:

Eric Gelb, CPA

Senior Managing Director, Financial Services

egelb@pkfod.com | 914.341.7049

Elisha M Brestovansky, MBA, CPA

Senior Tax Manager

ebrestovansky@pkfod.com | 845.670.7140